How UK banks can draw inspiration from across the pond
By Ramesh Ramani, Head of Banking & Financial Services Europe, Cognizant
It is a challenging time for UK banks, with an increasingly complex landscape and imminent events such as Brexit posing a threat to stability. Traditional banking institutions also face the rapid success of digital-first challenger banks and fintech firms, with an ever-increasing number of new entrants snapping at their heels. The pressure is on for UK banks to become more resilient by adopting customer-centric strategies, evolving with market trends and piloting emerging technologies.
Many US banks have been lauded for their ability to remain buoyant in a tough market. However, direct, ‘like for like’ comparisons between US and UK banking institutions should always be made with caution, bearing in mind that they come under distinctly different sets of regulations. For example, European banking rules have recently been made far more stringent, due to the avalanche of regulations that flooded the European financial sector following the fall-out of the 2008 crisis. However, UK banks would do well to take inspiration from their US counterparts’ strategies for keeping agile in a competitive environment.
For example, Temenos’ 2019 State of Digital Sales in Banking report found that the largest US banks now lead the world in digital sales adoption for personal banking compared to European and Australian institutions, with up to 75 per cent being mobile-enabled.
This is largely due to significant and rapid developments in automated credit decisioning, allowing lenders to develop smoother and swifter business processes. This is underpinned by the use of shared utility models, which enable faster credit checks by giving institutions access to a utility service provided by a third party, so they only pay for the services and data they use.
A bird’s eye view of differences between the UK and the US
Some may argue that these differences have arisen because, in the US, the onus is on the customer, not the bank. US banking institutions can take more risks in terms of credit positioning and lending, bending the rules to take advantage of shared utilities and services to disperse loans as quickly as possible. Comparatively, the responsibility sits with the lender in the UK, so institutions tend to be more cautious, relying on their processes rather than third parties where they could be held accountable. This may hold them back in terms of new digital advances.
In the US, banking regulations have become less stringent in recent years, further relaxed by the Trump administration with loosened rules on short-term, small-dollar lending. This means banks have been able to take more risks, using shared utilities to get loans and credit decisions to the customer as quickly as possible.
For example, the banking sector has a shared utility platform called ‘Early Warning’, led by JP Morgan in conjunction with other banks, that allows banks and credit unions to tap into a pay-as-you-go service and make checks based on a database of fraudulent customers. This platform has enabled the US banking sector to be bolder and widen the ecosystem of partners both within and outside of core industries, to provide customers with a well-rounded and holistic experience. Whereas European banks invariably have to put on the brakes due to tighter regulations, their US counterparts are less risk-averse, leading to more fintech partnerships opening up and transforming the system.
What does it all come down to?
It is the truly customer-centric approach, with a focus on services catering to specific customer needs, which is setting US banks apart. For example, Huntington National Bank spent two years listening to customer feedback to create its digital banking hub that helps customers manage their finances. It should be noted that some UK banks are making moves in the right direction, including Starling Bank, which has a user-friendly app as well as a marketplace for customers to access a range of complementary financial services and products. It is offerings like this that have seen Starling Bank take the title of best British bank two years in a row. However, more can be done across the board to stay ahead in the current, competitive landscape.
US banking institutions are partnering with companies in other markets so they can be involved in their customers’ journeys throughout life, not just anyone stage of it. Ally Bank, for example, collaborates with other digitally-minded companies to provide convenient end-to-end customer solutions, including a recent partnership with Better.com – one of the fastest-growing digital mortgage disruptors in the US. When it comes to collaboration, the US has a distinct advantage; access to Silicon Valley, a much vaster tech ecosystem than that of Europe, enables more proliferation and tying up between banks and tech firms. The key is to provide a seamless experience for customers by creating and expanding on partner ecosystems.
UK companies can follow the US banking system’s lead by working more closely with digital partners who can propel the process along. This, combined with an extra layer of intelligence so they can get actionable insights, will ultimately help banks become closer to their customers.